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TMI Blog1987 (2) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of the investment allowance under s. 32A of the IT Act, 1961 amounting to Rs. 348,648." At the hearing the ld. counsel for the assessee submitted that he was not pressing the first ground since it is of academic interest. The assessee will, therefore, not be entitled to any relief in respect of this ground. 3. We now take up for consideration first the third grounds which relates to non-allowance as deduction of the investment allowance claim under s. 32A of the IT Act, 1961. The break up of the items in respect of which the investment allowance is claimed, is given in the assessment order and is as under: "1. Sanitary installation Rs. 35,644 2. Air Conditioner plant Rs. 2,08,817 3. Kitchen Equipment Rs. 8,63,211 4. Misc. Plant Machinery Rs. 1,72,583 5. Music instruments Rs. 1,14,335 Rs. 13,94,590 Investment allowance @ 25% Rs. 3, 48,648" The IAC (Assessment) in the assessment order has stated that the Kerala High Court in the case of Casino Private Ltd, (1973) 91 ITR 289 (Ker) had held that a hotel is mainly a trading concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in the appeal before the CIT(A) had submitted that it owns an industrial undertaking which produces articles or things. The submission of the assessee was that the IAC (Assessment) had relied upon the decision of the Kerala High Court in the case of Kasibo Private Ltd. and rejected the claim of the assessee. The assessee, however, submitted that there was a decision of Supreme Court in the case of 156 ITR (sic) to the effect that the sanitary installations are also plant and further a decision of Tribunal, Delhi Bench 'C' in the case of Orient Express Co. (P) Ltd. vs. IAC (1985) 23 TTJ (Del) 597 : (1985) 14 ITD 506 (Del) supported its case. The CIT(A) stated that the assessee's claim had been considered by him at length in the case of asst. yr. 1980-81 and for the reasons given therein, the claim was rejected. He, therefore, did not proceed to examine the position from the factual aspect. Annexure 'A' gives the position relating to the claim of investment allowance by the assessee, that allowed by the ITO, IAC (Assessment), by the CIT(A), etc. It is seen that in the asst. yr. 1979-80 investment allowance was allowed on some of the assets by the IAC (Assessment) and on the bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce on those items on which investment allowance had not been allowed by the ITO. The assessee has filed an appeal to the Tribunal pleading for allowance of investment allowance on those items in respect of which the CIT(A) declined to accede to the assessee's claim. In relation to the assessment year now under consideration, the CIT(A) has based his decision on that for the asst. yr. 1980-81. In that order as we have already stated on facts, the assessee's claim stood allowed in part after the decision of the first appellate stage. For the asst. yr. 1981-82 for the sake of completeness, we may state that the claim of the assessee for allowance of investment allowance was to the extend of Rs. 17,49,100 and the ITO allowed investment allowance on air-conditioning plant to the extent of Rs. 5,03,407 on miscellaneous plant and machinery to the extent of Rs. 3,72,880, making an aggregate allowance of Rs. 8,76,295, In the first appeal relating to the claim to the extent disallowed, the assessee did not succeed and filed a further appeal before the Tribunal. The Administrative Commissioner, we find, had also passed an order under s. 263 of the Act, whereby he noticed that the ITO had all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of grant of investment allowance as such to a hotel may be figuring. Such a general issue figures in another case which was directed to be listed before the Special Bench (ITA No. 6309/83). However, on a detailed examination of the facts in this case which we have set out we consider it both desirable and essential looking to the treatment accorded to grant of investment allowance on the different assets from year to year that there should be even at the earliest stage, adjudication asset-wise as to whether investment allowance is admissible or nor on an examination to be made assuming that there is no general bar to the grant of investment allowance to the assessee based on solely the nature of the business carried on. In the present case, there is no such adjudication by the CIT(A) for the assessment year under consideration since he only followed his order for the asst. yr. 1980-81 where in respect of some of the items investment allowance already stood allowed though there has been discussion in the order of assessment this year why in respect of particular assets investment allowance was not admissible even assuming there was no general bar. 6. We should, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a rebate under other provisions of the Act in the percentage of tax to be levied in respect of the receipts in the form of foreign exchange. Under the provisions of s. 7(3) chargeable receipts received before the expiry of one month from the end of the month in which the Act came into force was not to be taken into account. Thus only chargeable receipts from 1st February 1981 was to be taken into account. There are other provisions of the Act relating to the filing of the returns making of assessments, advance payment of tax, penalties, etc. There is also in particular one provision, i.e., s. 21 which reads as under (1981) 127 ITR (ST) 29" "21. Hotel receipts tax deductible in computing total income under IT Act—Notwithstanding anything contained in the IT Act in computing the income chargeable to income tax under the said Profits and gains of business or profession in the case of an assessee carrying on the business of a hotel to which this Act applies, the hotel receipts tax payable by the assessee for any assessment year shall deductible from the profits and gains of the business of the hotel assessable with the assessment year." The Explanatory Notes on this tax were con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding hearing of the Stay Applans. On 13th February 1981, we grant interim stay of operation of the Hotel Receipts Tax Act. 1980. IT is unnecessary to add but we may clarify that in the event of the petitioners failing in the matters they will be liable to apply the tax irrespective of the fact whether they have collected from the customers or not." On 13th February 1981 the order passed was: "Upon hearing counsel, the Court confirmed the stay. Liberty to mention for early date." On 17th August 1981 the Court passed the following order: "Stay on condition that the petitioners will be at liberty to collect the tax but the tax so collected shall be deposited in this Court for every quarter along with a statement of persons from whom the tax is collected. The deposit will be made within one month of every quarter, the first of such quarters will begin from October 1, 1981. The order passed by us on January, 29, 1981 in W.P. Nos. 254-261/81, etc. etc. will stand namely: "That in the event of the petitioners failing in the matters they will be liable to pay the tax irrespective of the fact whether they have collected it from the customers or not." Even if the petitioners do n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipts Tax till the hearing of the Petition. In accordance with our request, the Hon'ble Supreme Court has directed that the time for depositing the Hotel Receipts tax in the Supreme Court be extended till further orders. In view of this. you are not required to deposit the amount immediately". There was a circular letter dt. 27th April, 1982 issued by the Federation of Hotel Restaurant Association of India to all Organisations and Individual Members which states as follows: "Re : Writ Petition filed in the Supreme Court re: Hotel Receipts Tax Act. Please refer to our Circular No. F/RC/7/82 dated 24th March, 1982, wherein we advised you that the aforesaid matter would be mentioned before the Supreme Court on or about March 29, with the request that the time for depositing the tax with the Supreme Court by the hotels concerned should be further extended. The above matter was mentioned in the Supreme Court on March 31, 1982, and the Court directed that the matter shall again appear on 19th April, 1982 and the stay for depositing the tax with the Supreme Court was extended upto 20th April, 1982. The matter came up for hearing before the Supreme Court on 19th April, as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the account books as would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as trading receipt. Per curiam : The appellant would, of course, be entitled to claim deduction of the amount as and when it pays it to the State Government." 14. IAC then proceeded to refer to the arguments of the assessee that the said collections could not be treated as trading receipts and even if they were treated as trading receipts, a corresponding liability would have to be allowed as a deduction in view of the decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co. vs. CIT (1971) 82 ITR 363 (SC). According to the IAC. any amount collected in the course of business was a trading receipt and this was clear from the subsequent judgment of the Supreme Court also in the case of Sinclair Murray and Co. P. Ltd. vs. CIT 1974 CTR (SC) 283 : (1974) 97 ITR 615 (SC). He emphasised that the amount payable could be allowed as a deduction, only when actually paid and he referred to the judgment of the Punjab and Haryana High Court in the case of Sirsa Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction or not will depend on the provisions of law relating thereto and not on the view which the assessee might take of his right; nor can be the existence or absence of entries in his books of accounts be decisive or conclusive in the matter. Thus, in the present case the legal position is that the operation of the Hotel Receipts Tax Act has been stayed by the Supreme Court and hence there is no legal liability to pay the Hotel Receipts tax till the matter in decided by the Supreme Court. The voluntary act of collection of Hotel Receipts tax by the assessee from its customers is a part of trading receipts of the assessee which the assessee should incorporate in its income. It is further pertinent to mention that in the case the Supreme Court declares the Hotel Receipts Tax Act as ultra vires, then there is no contractual liability of the assessee to refund the said amount of Hotel Receipts tax to its customers from whom the said money was collected. The representative of the assessee had shown me bill on which a rubber stamp was affixed stating that in case the Hotel Receipts Tax Act is held as invalid, the customer may collect the Hotel Receipts tax on production of bill. Firstl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Mfg. Co. and Chowringhee Sales Bureau P. Ltd. Since the operation of the Hotel Receipts Tax Act stood stayed, the CIT(A) stated that there was no liability of the assessee to make payment of Hotel Receipts tax collected from customers to Government. Sec. 21 of the said Act also, therefore, was not operative. According to the CIT(A), only if the assessee failed eventually before the Supreme Court, the amount so collected of Hotel Receipts tax would become payable and the liability as far as this year was concerned, was a contingent liability, not being merely in dispute, but what may be even described as standing, decided for the present in favour of the assessee. After referring to various judicial pronouncements, the CIT(A) finally concluded that the contentions of the assessee to be rejected and, therefore, he upheld the addition. 17. In the appeal before us, the submissions of the learned counsel for the assessee were two-fold. His first submission was that the amount which was collected by way of Hotel Receipts tax did not form part of the trading receipts at all of the assessee. In support of this contention, he relied on the ratio of the judgment of the Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was subject to diversion by overriding title and could not be considered to be part of the receipts of the assessee on its own account. 20. In the case of M/s. Bijli Cotton Mills (P) Ltd., the payment by the customers was of "Dharmada" and the payments from the inception were validly earmarked for charity. It was taken by the seller under the understanding that the amount would be spent for charity and in such circumstance, the Supreme Court held that the amount would not constitute trading receipts and the assessee was under an obligation to utilise the amount exclusively for charitable purposes and the trust could be implied. The Court also observed that the realisations were not a part of the price, or surcharge on the price but payments for the specific purpose of being spent on charitable purposes and they could not be regarded as trading receipts of the assessee. Such is not the case here. The amount paid by the customers, where it was collected, was debited in the bills as Hotel Receipts tax, and the question of the assessee holding the amount on trust did not in our view, arise. In the case of Tollygunge Club Ltd. again the decision revolved on the fact that the surcharg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income but for and on behalf of the person to whom it is payable." If we view the facts in the light of the ratio of both the decisions, it is clear that the Hotel Receipts tax could not be said to have been paid by the buyers in a manner that an obligation was cast on the assessee to utilise the same only for the purpose of payment of such tax. The assessee may have had an obligation to pay the receipt tax but that could be out of his other receipts also. It cannot be said that there was any obligation by which the receipts were delivered before it reached the assessee as income. We have therefore, to hold that it has not been established that the amounts collected were not trading receipts of the assessee. 21. The second submission of the ld. Counsel for the assessee was that even if the amount was a trading receipt, there was a corresponding liability, which immediately accrued because the assessee was maintaining accounts on the mercantitle system. Considerab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercantile system). 23. The ld. departmental representative then went on to stress his arguments as to why even if the assessee was following the mercantile system of accounting, the deduction could not be allowed. The cases relied on by him were: Calcutta Co. Ltd. vs. CIT (1953) 24 ITR 454 (Cal) Non Such Tea Estate Ltd. vs. CIT 1975 CIT (SC) 20 : (1975) 98 ITR 189 (SC) CIT vs. Oriental Motor Car Co. P. Ltd. (1980) 16 CTR (All) 140 : (1980) 124 ITR 74 (All) Addl. CIT vs. U.P. State Agro Industrial Corpn. (1982) 133 ITR 597 (All) CIT vs. West Ghousick Coal Co. Ltd. (1981) 20 CTR (Cal) 269 : (1981) 20 CTR (Cal) 62 Calcutta Investment Co. Ltd. CIT (1983) 35 CTR (Cal) 200 : (1983) 142 ITR 120 (Cal) CIT vs. Hindustan Housing and Land Development Trust Ltd. (1986) 58 CTR (SC) 179 : (1986) 161 ITR 524 (SC). 24. In reply, the ld. Counsel for the assessee, submitted that apart from the receipts having to be allowed as a deduction by virtue of s. 21 of the Hotel Receipt Tax Act, even under the IT Act, because the assessee maintained accounts on mercantile basis, the amount was an admissible deduction. In relation to the cases relied on by the ld. departmental representat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependent upon what the assessee did of its own volition in future. This decision therefore, does not help revenue. The decision in the case of Non Such Tea Estate Ltd. vs. CIT 1975 CTR (SC) 20 : (1975) 98 ITR 189 (SC) also does not help to solve the present case because that was a case of absolute prohibition existing under the Companies Act to the appointment of managing agents without the permission of the Government approving the appointment with retrospective effect. In view of the absolute prohibition, the Court held that the liability arose only when the approval was given though retrospectively. That principle, in our view, does not help in deciding the case here. CIT vs. Oriental Motor Car Co. (P) Ltd. (1980) 124 ITR 74 (All) was a case where the liability was of a contractual nature and arose only when it was agreed to. Such was the case in Addl. CIT vs. U.P. State Agro Industrial Corporation (1982) 133 ITR 597 (All) also. In the case of CIT vs. West Ghousick Coal Co. Ltd. (1981) 20 CTR (Cal) 269 : (1981) 129 ITR 62 (Cal) it was a case where the issue as to whom royalty was payable was in dispute and the State Government passed the Act retrospectively and the Court held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., 1st April, 1981 to 31st March, 1982 is concerned, the stay granted by Supreme Court of the Hotel Receipts Tax Act was in relation to the particular writ petitioners and was also stay on terms. It also clearly stated repeatedly in the orders of the Supreme Court that the petitioners in the event of their failing in the matters, would be liable to pay the tax irrespective of the fact whether they collected it from the customers or not. The assessee had challenged the vires of the Act. The Supreme Court had not pronounced on such plea. The effect of the stay orders granted by the Supreme Court was as far as the petitioners were concerned to half the machinery for qualification and enforcement as also that which required voluntary payment by way of advance tax. In the event of the Act being eventually declared to be intra vires the Act becomes effective from the date of coming into force and the receipts become changeable from 1st Feb., 1981. It will not be a case of any retrospective legislation being enacted by the State on a later date but it will be case only of the Supreme Court declaring the law as it always stood. It cannot therefore, be said that liability to pay hotel r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales Bureau Ltd., CIT vs. Sinclair Murray and Co. Ltd. (1970) 75 ITR 494 (Cal) and CIT vs. Century Enka Ltd. (1981) 130 ITR 267 (Cal). In the last of the cases even though no demand notice had been issued for the excise liability which was disputed, the Calcutta High Court held that the assessee had made a provision for liability in the accounts maintained on mercantile basis and the provision for excise duty so made is an allowable deduction. Such view was approved of by the Bombay High Court. 32. In the present case also even by the stay orders of the Supreme Court, as we have already found there was no bar to the assessee collecting the tax in the accounting year. On the other hand there was the express order of the Court that whether the tax was collected or not if the petitions failed the assessee would be liable to pay the tax. The Court had also initially directed that whether tax was collected was to be paid commencing from October, 1981, quarter-wise, into the Court. Even after the stipulation for deposit was resounded from 19th April, 1982, the assessee was required to file list of resident customers from whom collections were made, and copies of such specimen lists w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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